The new Indian government unveiled a $210 billion budget that increases welfare and rural spending in an effort to stimulate economic growth, but also will likely widen the fiscal deficit to its largest gap in 18 years.
Bloomberg News/Landov
Pranab Mukherjee, India's finance minister, center with briefcase, poses with his team outside the finance ministry on his way to present the budget for the financial year 2009-10 at the Indian Parliament in New Delhi on Monday.
Finance Minister Pranab Mukherjee said the government would make it a priority to reach 9% gross domestic product growth in the medium term and would seek to spend 9% of GDP on infrastructure development by 2014. Although world financial conditions have improved, there are still uncertainties on the revival of the global economy, Mr. Mukherjee said. "We can't afford to drop our guard," he told Parliament. "We have to continue our efforts to provide further stimulus to the economy."
Investors have bid up Indian shares since the ruling coalition, the United Progressive Alliance, won the general election in May. Many investors had been looking to the budget to outline a program of economic overhauls to attract foreign investment and the divestment of government stakes in state-owned companies to raise funds. But the budget was short on both, and the benchmark Bombay Stock Exchange Sensex index sank 5.8%, or 870 points, to 14043. (For more coverage on the Sensex's decline, please see World Stock Markets, page C2.)
Monday's budget gave little guidance on whether the government planned to pursue changes, such as opening the economy further to foreign investors and companies, during its five-year term. "The big picture and road map was missing in terms of attracting foreign direct investment and the disinvestment program to raise revenues," said Andrew Holland, chief executive for equities at Ambit Capital in Mumbai.
Mr. Mukherjee pointed out the government had enacted three fiscal-stimulus packages to counter the effect of the global slowdown on the Indian economy. The new budget seeks to use spending to ramp up slowing growth.
It also carries through on campaign pledges by the Congress party, which leads the governing coalition. Health care, education and employment will see most of the investment.
The programs will add up to an increase of 16% in total spending from a year earlier. As a result, India will have to sharply increase borrowing, widening a fiscal deficit to around 6.8% of GDP in the year ending March 31, 2010, from the previous year's 6%.
Standard & Poor's sovereign-ratings director Takahira Ogawa said the projected fiscal deficit was "within the boundary of S&P's expectation," indicating that the news wouldn't likely prompt an immediate credit-rating downgrade to junk. In February, S&P lowered its long-term sovereign-credit-rating outlook on some Indian debt to negative.
Some analysts expressed concern the government's finances could deteriorate. Sujan Hajra, chief economist at Anand Rathi Securities, said government borrowing is likely to be revised upward even further, increasing the risk that the fiscal deficit may hit 7% of GDP in the current fiscal year.
James McCormack, head of Asia-Pacific sovereign ratings at Fitch Ratings, said: "It is not a budget that in any way alleviates pressures on India's sovereign credit ratings." After the budget speech, Prime Minister Manmohan Singh said the budget will help accelerate economic growth. He said 7% economic growth is "achievable, but it's not enough. We should aim for 8% to 9% growth in the medium term."
Indian GDP grew 6.7% in the year ended March 31, slowing from a 9% expansion in the previous year. The government last week projected growth between 6.25% and 7.75% in the year ending March 31, 2010. India's economy depends far less on exports than many countries in Asia, and has weathered the global downturn in relatively sound shape.
The finance bill, which includes the budget proposals, is likely to be passed by Parliament on Aug. 7.
Bloomberg News/Landov
Pranab Mukherjee, India's finance minister, center with briefcase, poses with his team outside the finance ministry on his way to present the budget for the financial year 2009-10 at the Indian Parliament in New Delhi on Monday.
Finance Minister Pranab Mukherjee said the government would make it a priority to reach 9% gross domestic product growth in the medium term and would seek to spend 9% of GDP on infrastructure development by 2014. Although world financial conditions have improved, there are still uncertainties on the revival of the global economy, Mr. Mukherjee said. "We can't afford to drop our guard," he told Parliament. "We have to continue our efforts to provide further stimulus to the economy."
Investors have bid up Indian shares since the ruling coalition, the United Progressive Alliance, won the general election in May. Many investors had been looking to the budget to outline a program of economic overhauls to attract foreign investment and the divestment of government stakes in state-owned companies to raise funds. But the budget was short on both, and the benchmark Bombay Stock Exchange Sensex index sank 5.8%, or 870 points, to 14043. (For more coverage on the Sensex's decline, please see World Stock Markets, page C2.)
Monday's budget gave little guidance on whether the government planned to pursue changes, such as opening the economy further to foreign investors and companies, during its five-year term. "The big picture and road map was missing in terms of attracting foreign direct investment and the disinvestment program to raise revenues," said Andrew Holland, chief executive for equities at Ambit Capital in Mumbai.
Mr. Mukherjee pointed out the government had enacted three fiscal-stimulus packages to counter the effect of the global slowdown on the Indian economy. The new budget seeks to use spending to ramp up slowing growth.
It also carries through on campaign pledges by the Congress party, which leads the governing coalition. Health care, education and employment will see most of the investment.
The programs will add up to an increase of 16% in total spending from a year earlier. As a result, India will have to sharply increase borrowing, widening a fiscal deficit to around 6.8% of GDP in the year ending March 31, 2010, from the previous year's 6%.
Standard & Poor's sovereign-ratings director Takahira Ogawa said the projected fiscal deficit was "within the boundary of S&P's expectation," indicating that the news wouldn't likely prompt an immediate credit-rating downgrade to junk. In February, S&P lowered its long-term sovereign-credit-rating outlook on some Indian debt to negative.
Some analysts expressed concern the government's finances could deteriorate. Sujan Hajra, chief economist at Anand Rathi Securities, said government borrowing is likely to be revised upward even further, increasing the risk that the fiscal deficit may hit 7% of GDP in the current fiscal year.
James McCormack, head of Asia-Pacific sovereign ratings at Fitch Ratings, said: "It is not a budget that in any way alleviates pressures on India's sovereign credit ratings." After the budget speech, Prime Minister Manmohan Singh said the budget will help accelerate economic growth. He said 7% economic growth is "achievable, but it's not enough. We should aim for 8% to 9% growth in the medium term."
Indian GDP grew 6.7% in the year ended March 31, slowing from a 9% expansion in the previous year. The government last week projected growth between 6.25% and 7.75% in the year ending March 31, 2010. India's economy depends far less on exports than many countries in Asia, and has weathered the global downturn in relatively sound shape.
The finance bill, which includes the budget proposals, is likely to be passed by Parliament on Aug. 7.
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